New legislation (Decree 2/2023) is intended to improve the social security system’s sustainability and benefits adequacy to cope with an aging population and rising number of pensioners by establishing a reserve fund, introducing a new social solidarity contribution, and steadily increasing the monthly earnings ceiling for calculating contributions and benefits at a rate higher than inflation, among other things. According to government data, retirees currently make up a fifth of the population, projected to rise to 30% by 2050.
The reforms are part of a variety of measures recently introduced by the government to improve the system’s sustainability and benefits adequacy, including discouraging early retirement, gradually increasing normal retirement age and the minimum period of insured employment to qualify for a full pension. The latest reforms are aimed squarely at the system’s financing, with the brunt of the additional costs met by a higher earnings ceiling, the reserve fund and social solidarity contributions, resulting in higher costs for employers and employees – in particular with respect to highly paid employees. Around half of employers surveyed by WTW offer supplemental retirement benefits. New pension and tax laws introduced in 2022 are intended to boost retirement plan participation by providing new employer tax breaks and relaxing employee plan contribution limits (see Global News Brief: New tax incentives, sectoral pension and funding options) and will likely increase the percentage of the population with an occupational pension; however, hard euro caps on the amount of contributions limit tax incentives for retirement benefits for highly paid employees.